Diversification is a keystone of wise investment practices. The same is true on the macro-corporate level when it comes to deciding which projects to greenlight, and which innovations should stay on the drawing board. To remain competitive and future-proof the business, mature firms must learn how to launch new business models more successfully and less wastefully. That’s why more and more firms are evaluating corporate innovation projects using the same approach they take to balancing an investment portfolio.

The problem is finding the right formula to discover the ideal mix of new ventures for each unique firm and their growth goals – maximizing returns while minimizing risk.

The innovation consultants at Strategyzer believe they’ve found a methodology that’s robust enough to simplify the problem. Their solution is contained within the concept of their Business Model Portfolio. The model helps assess whether a company currently maintains a healthy mix of business models, how likely it is to be disrupted and its smartest investments for greater sustainability. The key is to explore new business concepts while continuing to exploit operational efficiencies in the company’s existing core business.

Here’s how it works.

Innovation projects will fall somewhere within one of two stages:

Stage 1: The Explore Innovation Engine

Stage 2: The Exploit Execution Engine

Stage 1: The Explore Innovation Engine

This is the stage where large companies analyze new opportunities that may be worth investing in to determine the business model’s growth potential and how it will stack up against competition. Ideas are plotted on a graph of Innovation Risk (from high to low) on the X axis and Expected Returns (from low to high) on the Y axis.

Ideas in the “High Innovation Risk” and “Low Returns” quadrant range from rough sketches to prototyped business models. Low Innovation Risk and High Returns quadrant are ideas supported by evidence of their success and ready for launch. The rest of the proposed business models should be discarded or reimagined.

Data sets that derive from testing the business model at this stage must be thoroughly vetted. To fully justify launch, all the stakeholders must be confident in the numbers before the company moves forward on this investment in a measured way.

Prioritize ideas that insulate the core business from competitors as a means to reduce the risk of disruption overall.

Even if all of the qualifications of a great idea are not there yet, that’s OK. Agile organizations launch and improve. The wider the range of investment opportunities in a healthy-sized portfolio, the lower the systemic risk. Parent firm corporations that have a low expected return and operate with a high risk for being disrupted are under increased pressure to take calculated risk if they want to successfully incubate the right investments to maturity, despite limited resources.

Stage 2: The Exploit Execution Engine

The Exploit Execution Engine kicks in after launch. This is where investments are incorporated into the core business and scaling becomes a viable means to reap the maximum revenue. Business models at this stage are on track for maturation, growth and sustainability. The X axis measures “Disruption risk” (low to high) and the Y axis measures “Real Returns” (low to high).

Often, business models in this stage experience fluctuations or even decreases in sales, but this isn’t the time to panic. The parent corporation should not register this as an indication to abandon the business model, but search for ways to sustain and improve for more reliable performance.

Ensuring Continuity

Successful investment portfolio management is the future. Enterprises that want to invest in innovation more intelligently must first determine where new business models fit on the Business Model Portfolio chart. Ensuring growth of the enterprise as a whole involves many small decisions about how to align smaller investments into business models that can be incorporated into the core business as they mature.

Diversification of ideas alone will not be sufficient to ensure continuity in the age of disruption. The strongest strategy involves diversification of ideation for new business models prior to launch and the management of market innovations as a portfolio of investments simultaneously.

Investigating management philosophies and methodologies like these are what we do at Scrappy Labs. Contact us for insights into how your business can grow in a volatile global marketplace.

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